Re: How to deal with RRSP's (Canada)
Greetings All, Like many of you, I am not an accountant and I do not have a compelling reason to be precisely accurate to GAAP other than yielding to my OCD. I am a US citizen so I am subject to US IRS tax code as well as state and local taxes. When I was actively employed and contributing to various "Qualified Plans" such as ESOPS, IRA's 401-Ks, etc., I wanted to include the vested portions in my personal net worth estimates. When I started tracking these things in GnuCash I created a subset of investments that I called "Investments - Qualified Plans" so that I could separate them from regular taxable investments. Accounts under that top level needed separate "Qualified" income and expense accounts as well. By that time I did not have to set up a way to track vesting, but I think that it is doable. Now that I am retired and taking distributions from some of these plans, I am providing for the now current tax liability by adding accounts to the distribution transactions to simulate the "Qualified Expense" of the distribution to the qualified plan and the "Taxable Income" to my regular taxable wealth. I place these extra lines in the transactions that represent the actual distribution from the qualified plan to a regular bank or investment asset account which normally also includes income tax withholding and possibly other deductions if there are any. I find that this method seems to meet my needs quite well. David C On Fri, Jan 5, 2018 at 6:08 PM, DaveC49 wrote: > Hi David > > The main reason for my suggested approach is that the relevant income is > still earned at the time the contributions are initially made and at the > time the fund earnings are credited to the account. It is only that the tax > on these earnings is deferred until the RRSP is converted to an RRIF and > funds are withdrawn from the RRIF and it is taxed at a current marginal > rate > not the original rate. > > We have similar but not exactly the same tax deferred retirement savings > schemes in Australia, hence my interest. I am fortunately past the > accumulation phase and in the retirement phase. I track the fund separately > from my daily accounts and simply treat the payments from the fund as > income > in my personal accounts and an expense in my accounting of the fund which > is > in reality done by my bank which administers it for me. We have schemes in > Australia which have different tax statuses depending on whether tax was > fully deferred on input so I have income streams which are taxed on > withdrawal and others which are not, to complicate the accounting. This > approach has always been vaguely dissatisfying for me though as the fund is > an asset and will form part of my estate when i drop off the perch and I > feel it should be able to be incorporated in my personal accounts if only > to > simplify things for my executor (the likely executor is fortunately an > accountant). > > Mike Novak makes a lot of valid points about the vesting of and accounting > for employer contributions which may apply to retirement fund accounting > generally, but not specifically to the RRSP-RRIF system in Canada which is > largely designed for self employed people to set up retirement funding and > to similar self managed and commercial funds in Australia. The accounting > also has to reflect the legislative framework which supports and > establishes > a particular type of fund and its terms and conditions. That said as long > as you have captured the essentail data at any point in time, you can > always > adjust the approach in the future if necessary. > > Nevertheless it should be possible to extract some broad general principle > accounting methodology from which to develop specific adaptions to > individual circumstances. That was my purpose in trying to identify the 5 > essential assumptions/features behind the RRSP-RRIF system in Canada in > looking at this. > > I had considered setting up of a long term Liability account for the > deferred tax. The only problem with this is while in the contribution phase > any tax liability calculations will be estimates only as you will likely > not > know precisely the marginal tax rate which may apply when you are in the > retirement phase. This would then introduce the complication of having to > make adjustments to these estimates once in the retirement phase and > withdrawing funds and paying tax on the withdrawals. > > My financial advisor and I did some estimates of the future tax liabilities > under various scenarios for example when setting up my finances for > retirement mainly for comparison of the advantages of using different fund > structures but these were only ever estimates. However incorporating this > into your accounts may serve some purpose if you specifically want to > monitor the ultimate actual performance of your retirement strategy vs your > expectation of that performance. > > I personally did not see any particular advantage in this level (deferred > tax l
Re: How to deal with RRSP's (Canada)
Hi David The main reason for my suggested approach is that the relevant income is still earned at the time the contributions are initially made and at the time the fund earnings are credited to the account. It is only that the tax on these earnings is deferred until the RRSP is converted to an RRIF and funds are withdrawn from the RRIF and it is taxed at a current marginal rate not the original rate. We have similar but not exactly the same tax deferred retirement savings schemes in Australia, hence my interest. I am fortunately past the accumulation phase and in the retirement phase. I track the fund separately from my daily accounts and simply treat the payments from the fund as income in my personal accounts and an expense in my accounting of the fund which is in reality done by my bank which administers it for me. We have schemes in Australia which have different tax statuses depending on whether tax was fully deferred on input so I have income streams which are taxed on withdrawal and others which are not, to complicate the accounting. This approach has always been vaguely dissatisfying for me though as the fund is an asset and will form part of my estate when i drop off the perch and I feel it should be able to be incorporated in my personal accounts if only to simplify things for my executor (the likely executor is fortunately an accountant). Mike Novak makes a lot of valid points about the vesting of and accounting for employer contributions which may apply to retirement fund accounting generally, but not specifically to the RRSP-RRIF system in Canada which is largely designed for self employed people to set up retirement funding and to similar self managed and commercial funds in Australia. The accounting also has to reflect the legislative framework which supports and establishes a particular type of fund and its terms and conditions. That said as long as you have captured the essentail data at any point in time, you can always adjust the approach in the future if necessary. Nevertheless it should be possible to extract some broad general principle accounting methodology from which to develop specific adaptions to individual circumstances. That was my purpose in trying to identify the 5 essential assumptions/features behind the RRSP-RRIF system in Canada in looking at this. I had considered setting up of a long term Liability account for the deferred tax. The only problem with this is while in the contribution phase any tax liability calculations will be estimates only as you will likely not know precisely the marginal tax rate which may apply when you are in the retirement phase. This would then introduce the complication of having to make adjustments to these estimates once in the retirement phase and withdrawing funds and paying tax on the withdrawals. My financial advisor and I did some estimates of the future tax liabilities under various scenarios for example when setting up my finances for retirement mainly for comparison of the advantages of using different fund structures but these were only ever estimates. However incorporating this into your accounts may serve some purpose if you specifically want to monitor the ultimate actual performance of your retirement strategy vs your expectation of that performance. I personally did not see any particular advantage in this level (deferred tax liability) of recording of my finances as individual calculations for possible strategies at the planning phase are much more useful to me and once I have committed to a strategy I will follow it unless circumstances change sufficiently that there is a benefit in adopting an alternative strategy and the possibility of changing strategy exists in any case. I prefer a looser form of monitoring with occasional spot checks. I also have performance reports from my financial institution which partly serve this function. I understand Cam's objective of trying to get the fund withdrawals to appear in a standard income report and if his approach works for him and provides the necessary information he needs, then that is fine provided he is aware of the possibility of he may introduce a distortion elsewhere in his accounts, which he may purposefully ignore. The only concern is someone else adopting a procedure without being aware of the possible distortion it may produce. An accountant may have a fit but as long as the taxman and the user are happy - no problem. This is however more likely to be true, if the accountant is also happy. I am going to continue to see if I can find an approach which is more intellectually satisfying and rigorous in accounting terms. The problem is really how to account for the conversion of an asset to an income stream in the same set of books. Concepts associated with the recording and sale of long term assets are one possibility to have a close look at. Cheers David Cousens - David Cousens -- Sent from: http://gnucash.1415818.n4.nabble.com/GnuCash-User-f141
Re: How to deal with RRSP's (Canada)
Michael, Because of your experience and knowledge, I was really hoping you’d weigh in with insight on the question of how to report a disbursement from one of these common retirement vehicles as income, rather than a transfer between assets. How would you recommend tracking money that is earned in 2017, but which is counted as taxable income only in 2035? Cheers, David > On Jan 5, 2018, at 7:42 PM, Mike or Penny Novack > wrote: > > On 1/5/2018 1:05 AM, David T. via gnucash-user wrote: >> David— >> >> I see where you are coming from on this. >> >> For reference, I accept your 5 assumptions; I believe they are accurate for >> many US retirement accounts as well. >> >> . >> I guess, from a philosophical perspective, the question really is: when do >> these funds become income? Is it when you get paid, or is it when the money >> actually gets disbursed? It seems to me that most of us are looking at it >> from the first perspective, but that the taxing agencies are looking at it >> from the second. So, for example, I have paycheck transactions that document >> my retirement contributions, transferring to the retirement asset accounts >> from a special (retirement) income account >> David > There are ADDITIONAL questions if a US 401k. For example, are company > contributions vested immediately or only over time? Here is a typical case > (yours might be different) > 1) Company contributions are vested 10% per year. > 2) Any still unvested contributions become fully vested upon retirement at > normal age (possibly also separation earlier but after age 55) or upon death > if earlier. > > In other words, the company contributions are conditional on staying with the > company. They are in the account and earning but there is a diminishing > liability (you have to pay back the unvested portion if you leave) > > The 401k account MAY also have after tax contributions made to it, but that > only affects how distributions will be taxed. > > Another benefit that some companies offer is "split dollar" insurance. Very > complicated to figure its affect on net worth. With split dollar, the company > still owns the policy but you get to select the beneficiary << the rights > associated with ownership of an insurance policy can be separated >> Called > "split" because the employee is taxed for the premium of the same amount term > policy. Often to prevent that complication, the employee is billed that > amount. At termination the employee has the right to: > 1) Surrender the policy paying the company back for the premiums from the > accumulated policy values keeping the remainder. > 2) Pay the company that amount and keep the policy. > Note that there is a hard to calculate value associated with that choice << > what is your health status at this time in the future when you have to make > that decision. > > Note that this is simply a special case of things that might affect > "effective" net worth or income but are difficult to carry on the (main) > books. For example, a job might provide in addition to salary, housing, use > of a vehicle, etc. << and this could even be tax free "income" depending on > the circumstances >> > > Michael D Novack > ___ > gnucash-user mailing list > gnucash-user@gnucash.org > https://lists.gnucash.org/mailman/listinfo/gnucash-user > - > Please remember to CC this list on all your replies. > You can do this by using Reply-To-List or Reply-All. ___ gnucash-user mailing list gnucash-user@gnucash.org https://lists.gnucash.org/mailman/listinfo/gnucash-user - Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
Re: How to deal with RRSP's (Canada)
On 1/5/2018 1:05 AM, David T. via gnucash-user wrote: David— I see where you are coming from on this. For reference, I accept your 5 assumptions; I believe they are accurate for many US retirement accounts as well. . I guess, from a philosophical perspective, the question really is: when do these funds become income? Is it when you get paid, or is it when the money actually gets disbursed? It seems to me that most of us are looking at it from the first perspective, but that the taxing agencies are looking at it from the second. So, for example, I have paycheck transactions that document my retirement contributions, transferring to the retirement asset accounts from a special (retirement) income account David There are ADDITIONAL questions if a US 401k. For example, are company contributions vested immediately or only over time? Here is a typical case (yours might be different) 1) Company contributions are vested 10% per year. 2) Any still unvested contributions become fully vested upon retirement at normal age (possibly also separation earlier but after age 55) or upon death if earlier. In other words, the company contributions are conditional on staying with the company. They are in the account and earning but there is a diminishing liability (you have to pay back the unvested portion if you leave) The 401k account MAY also have after tax contributions made to it, but that only affects how distributions will be taxed. Another benefit that some companies offer is "split dollar" insurance. Very complicated to figure its affect on net worth. With split dollar, the company still owns the policy but you get to select the beneficiary << the rights associated with ownership of an insurance policy can be separated >> Called "split" because the employee is taxed for the premium of the same amount term policy. Often to prevent that complication, the employee is billed that amount. At termination the employee has the right to: 1) Surrender the policy paying the company back for the premiums from the accumulated policy values keeping the remainder. 2) Pay the company that amount and keep the policy. Note that there is a hard to calculate value associated with that choice << what is your health status at this time in the future when you have to make that decision. Note that this is simply a special case of things that might affect "effective" net worth or income but are difficult to carry on the (main) books. For example, a job might provide in addition to salary, housing, use of a vehicle, etc. << and this could even be tax free "income" depending on the circumstances >> Michael D Novack ___ gnucash-user mailing list gnucash-user@gnucash.org https://lists.gnucash.org/mailman/listinfo/gnucash-user - Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
Re: How to deal with RRSP's (Canada)
David— I see where you are coming from on this. For reference, I accept your 5 assumptions; I believe they are accurate for many US retirement accounts as well. The Income/Equity splits in Cam’s example are a mechanism that allow distributions to appear as income on reports, without affecting the transfer between asset accounts. This makes it easier to prepare reports for taxing agencies when needed. I see, however, how that might be finessed using reports instead of extra offsetting splits. I guess, from a philosophical perspective, the question really is: when do these funds become income? Is it when you get paid, or is it when the money actually gets disbursed? It seems to me that most of us are looking at it from the first perspective, but that the taxing agencies are looking at it from the second. So, for example, I have paycheck transactions that document my retirement contributions, transferring to the retirement asset accounts from a special (retirement) income account. Perhaps there is a sound accounting method for documenting that deferred amount as something other than income at the time it is diverted into retirement accounts? Then it could become income at the time of disbursement… David > On Jan 5, 2018, at 10:27 AM, DaveC49 wrote: > > Cam, > > I have been giving a bit of thought to the way one might account properly > for Retirement funds. I am not sure how your CRA asks for information about > income from your RRIFs. In Australia, I have specific questions in the tax > return dialog at which I have to record the income from such funds and it is > distinct from any ordinary income from other sources. If this is also the > case in Canada then the following should be a reasonable treatment in > accounting terms. > > Assumptions: >1. Contributions to the RRSP are from pre-tax income; >2. Contributions to the RRSP are not taxed on payment into the fund > (i.e. the contributions are tax deductible against income at the time of > their payment; >3. Fund earnings are not taxed as they are earned; >4. Withdrawals from the fund after retirement and conversion to RRIF are > taxable at that time; >5. Withdrawals from the RRIF are not taxed in the hands of the fund on > withdrawal (i.e. no withholding tax) but the payment of tax is through the > drawer’s personal income tax at whatever marginal rate applies. > > The most obvious way of accounting for this, particularly if your income tax > return has a specific entry for a total of RRIF (or converted RRSP) > withdrawals, is simply to record the withdrawal as a transaction from an > Asset:Fixed:RRIF account to a Asset:Bank:Savings (or Cheque) account. i.e. > debit the Savings account and credit the RRIF account by the amount of the > withdrawal. This is assuming no withholding tax applies. > > A custom report which then listed and totalled all withdrawals from the RRIF > account would provide the necessary information for completing such a tax > return entry. > > Even if there was no separate entry for RRIF withdrawals, the results of the > above report could simply be added to your income entries at an appropriate > point. (I have no familiarity with CRA tax processes so cannot suggest how > this might appear .) > > In the case where a withholding tax is applied by the institution > administering the RRIF to any withdrawal how you record it will depend upon > how you record your Tax liabilities generally. Taxes are generally recorded > as Liabilities e.g in an account like Liabilities:Tax. To record withholding > taxes, which are generally paid in advance of assessment of your tax > liability you would normally use what is known as a contra account in > accounting to record this. A typical account structure might look something > like: > > Liability:Tax parent account; > Liability:Tax Assessed daughter account to record > tax assessed by authority; > Liability:Tax:Withholding daughter account to record tax > withheld from income. > > When withholding tax is paid to the tax authority by the account > administrator (your bank for example), you would record it as a debit to > the Liability:Tax:Withholding account where as assessments of tax owing > would be recorded as a credit to Liabilities:Tax:Assessed and the balance of > Liability:Tax gives your overall tax liability position. With this sort of > structure for tax recording, then recording a withdrawal from an RRIF of > $ with tax $ withheld, i.e. a nett payment of $ =$-$ > to your bank account would be recorded as: > >Debit| Credit > Asset:Fixed:RRIF | $ > Liability:Tax:Withholding $ | > Asset:Bank:Savings $| > > Must stress that the above is a suggested approach for accounting fo
Re: How to deal with RRSP's (Canada)
Cam, I have been giving a bit of thought to the way one might account properly for Retirement funds. I am not sure how your CRA asks for information about income from your RRIFs. In Australia, I have specific questions in the tax return dialog at which I have to record the income from such funds and it is distinct from any ordinary income from other sources. If this is also the case in Canada then the following should be a reasonable treatment in accounting terms. Assumptions: 1. Contributions to the RRSP are from pre-tax income; 2. Contributions to the RRSP are not taxed on payment into the fund (i.e. the contributions are tax deductible against income at the time of their payment; 3. Fund earnings are not taxed as they are earned; 4. Withdrawals from the fund after retirement and conversion to RRIF are taxable at that time; 5. Withdrawals from the RRIF are not taxed in the hands of the fund on withdrawal (i.e. no withholding tax) but the payment of tax is through the drawer’s personal income tax at whatever marginal rate applies. The most obvious way of accounting for this, particularly if your income tax return has a specific entry for a total of RRIF (or converted RRSP) withdrawals, is simply to record the withdrawal as a transaction from an Asset:Fixed:RRIF account to a Asset:Bank:Savings (or Cheque) account. i.e. debit the Savings account and credit the RRIF account by the amount of the withdrawal. This is assuming no withholding tax applies. A custom report which then listed and totalled all withdrawals from the RRIF account would provide the necessary information for completing such a tax return entry. Even if there was no separate entry for RRIF withdrawals, the results of the above report could simply be added to your income entries at an appropriate point. (I have no familiarity with CRA tax processes so cannot suggest how this might appear .) In the case where a withholding tax is applied by the institution administering the RRIF to any withdrawal how you record it will depend upon how you record your Tax liabilities generally. Taxes are generally recorded as Liabilities e.g in an account like Liabilities:Tax. To record withholding taxes, which are generally paid in advance of assessment of your tax liability you would normally use what is known as a contra account in accounting to record this. A typical account structure might look something like: Liability:Tax parent account; Liability:Tax Assessed daughter account to record tax assessed by authority; Liability:Tax:Withholding daughter account to record tax withheld from income. When withholding tax is paid to the tax authority by the account administrator (your bank for example), you would record it as a debit to the Liability:Tax:Withholding account where as assessments of tax owing would be recorded as a credit to Liabilities:Tax:Assessed and the balance of Liability:Tax gives your overall tax liability position. With this sort of structure for tax recording, then recording a withdrawal from an RRIF of $ with tax $ withheld, i.e. a nett payment of $ =$-$ to your bank account would be recorded as: Debit| Credit Asset:Fixed:RRIF | $ Liability:Tax:Withholding $ | Asset:Bank:Savings $| Must stress that the above is a suggested approach for accounting for such funds but is not specific accounting advice. It may or may not need some other adjustments to account for aspects of the enabling RRIF and taxation legislation with which I claim no real familiarity. I have looked at some info http://accountingtoronto.ca/2017/09/15/registered-retirement-saving-plan-rrsp/, https://en.wikipedia.org/wiki/Registered_Retirement_Savings_Plan, http://www.wheatlandaccounting.com/rrsp.html to compare it with what I am familiar with in my own jurisdiction (Australia) but only in broad conceptual terms. Cam I don't think there is a need to use an equity or expense account as the offset account for a withdrawal or even an expense account (recording an existing balance against Equity:Opening Balances is not a problem when you open/create a set of books). Expense accounts generally record the expenditure on goods or services which are expected to be consumed within the accounting period so it would be somewhat artificial to use an expense account. The most logical offset account is the Asset account into which the funds are paid, i.e a cheque/check or savings account as you have converted a fixed long term asset, the RRIF, into a current asset -cash in you bank account, when you make a withdrawal. David - David Cousens -- Sent from: http://gnucash.1415818.n4.nabble.com/GnuCash-User-f1415819.html ___ gnucash-user mai
Re: How to deal with RRSP's (Canada)
On 3 January 2018 at 22:11, Cam Ellison wrote: > >> The examples I used were (perhaps over-) simplifications. In practice, I > actually have a number of stocks and money market accounts within two RIFs, > like so: > > Assets:investments:RIF:Stock1 > Assets:Investments:RIF:Stock2 > Assets:Investments:RIF:MoneyMarket1 > Assets:Investments:RIF:Cash > etc. > Mine are similar, without the cash account. Looks like we're modelling this part the same way. > > > The offset account can't be a liability - that would double the impact of > the withdrawal and screw up your balance sheet. It pretty much needs to be > either an Equity or an Expense account. As I think about it more, there is > a certain logic to the latter, since it was originally Income. I see what you mean about Liability.. you're right, that wouldn't work. Last night as I was thinking about this more, it occurred to me that a non-taxable Income account would probably work best to balance out taxable income. > I think if your employer contributes to your RRSP or a fund or other > instrument within it, that probably needs to be dealt with as Income. Also, > it may count as a taxable benefit. My recollection from the last time an employer did RRSP matching for me was that it was tax deferred, just like any other RSP contribution. But, I was talking about self-contributing direct from payroll, which can happen pre-tax (pre-withholding). ___ gnucash-user mailing list gnucash-user@gnucash.org https://lists.gnucash.org/mailman/listinfo/gnucash-user - Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
Re: How to deal with RRSP's (Canada)
On 03/01/18 04:36 PM, Matthew Pounsett wrote: I am not an accountant.. or even a bookkeeper.. but here's how I deal with RRSPs. For me, the RRSPs have been converted to Income Funds, but the principle and procedure are still the same. Contribution is straightforward: from a Current Asset account to the RRSP, like this: Assets:Current Assets:Chequing Account$5,000 Assets:Investments:RRSP$5,000 RRSPs are investments–typically mutual funds–and not savings accounts (at least, every RSP account I've ever had has been presented that way: as X units worth $Y per unit). So, when I buy in to my RRSPs it shows in my GC books as a purchase of shares of a mutual fund. Transfers out as a sale of shares. Withdrawal is more complex, because you have to show Income, Withholding Tax, the receiving Account, and the RRSP account, so using an Equity account for RSP/RIF withdrawals is needed to balance, like this: It only needs to be more complex if you're trying to use GC to calculate your tax for you. If that's the case, then there's additional complexity on both the purchase and sale of RRSP shares. On purchase, you need to reduce your income, but I'm not sure what that would be balanced against. The most likely prospect seems to me to be a liability, probably. On sale there's no withholding, or any immediate tax activity.. that all comes at the end of the year when you calculate your taxes. This makes sense if you think about the fact that (assuming you purchase RRSP shares from out of your assets) there was no negative change to withholding when you bought the RRSP shares in the first place. That only occurs if your employer is buying shares on your behalf pre-tax, which will still work out, because that immediately reduces whatever you would have put in your income (salary) account. So on purchase of RRSP shares you'd reduce your effective income and increase an offset (liability?) account. On sale, do the reverse until your chosen offset account hits zero, and then any other withdrawls are new income (gains on the investment). I believe the rest should come out in the wash (tax forms). The only question in my mind is what to balance the income account against.. and I'm afraid for that I only have guesses. The examples I used were (perhaps over-) simplifications. In practice, I actually have a number of stocks and money market accounts within two RIFs, like so: Assets:investments:RIF:Stock1 Assets:Investments:RIF:Stock2 Assets:Investments:RIF:MoneyMarket1 Assets:Investments:RIF:Cash etc. A withdrawal from the RRSP/RIF is actually from the cash account within the RRSP/RIF subsequent to selling money market shares. Everything is a Stock, except the cash account. If you have mutual funds, substitute appropriately. I have RIFs, being over 71, but for our purposes here the difference between RRSP and RIF is in name only. If there is only one financial instrument, then you obviously would dispense with the detailed breakdown shown above. The offset account can't be a liability - that would double the impact of the withdrawal and screw up your balance sheet. It pretty much needs to be either an Equity or an Expense account. As I think about it more, there is a certain logic to the latter, since it was originally Income. I may have been doing that part wrong. When I moved everything into GnuCash lo, these many years ago, I had to use Equity:Opening Balances as the offset to each item within the RRSP, and simply continued the practice, with a different sub-account I am not an accountant, either, but perhaps a member of this list who is might weigh in on this last point. I think if your employer contributes to your RRSP or a fund or other instrument within it, that probably needs to be dealt with as Income. Also, it may count as a taxable benefit. Cheers Cam ___ gnucash-user mailing list gnucash-user@gnucash.org https://lists.gnucash.org/mailman/listinfo/gnucash-user - Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
Re: How to deal with RRSP's (Canada)
I am not an accountant.. or even a bookkeeper.. but here's how I deal with RRSPs. > >> For me, the RRSPs have been converted to Income Funds, but the principle > and procedure are still the same. Contribution is straightforward: from a > Current Asset account to the RRSP, like this: > > Assets:Current Assets:Chequing Account$5,000 > Assets:Investments:RRSP$5,000 > > RRSPs are investments–typically mutual funds–and not savings accounts (at least, every RSP account I've ever had has been presented that way: as X units worth $Y per unit). So, when I buy in to my RRSPs it shows in my GC books as a purchase of shares of a mutual fund. Transfers out as a sale of shares. > Withdrawal is more complex, because you have to show Income, Withholding > Tax, the receiving Account, and the RRSP account, so using an Equity > account for RSP/RIF withdrawals is needed to balance, like this: > It only needs to be more complex if you're trying to use GC to calculate your tax for you. If that's the case, then there's additional complexity on both the purchase and sale of RRSP shares. On purchase, you need to reduce your income, but I'm not sure what that would be balanced against. The most likely prospect seems to me to be a liability, probably. On sale there's no withholding, or any immediate tax activity.. that all comes at the end of the year when you calculate your taxes. This makes sense if you think about the fact that (assuming you purchase RRSP shares from out of your assets) there was no negative change to withholding when you bought the RRSP shares in the first place. That only occurs if your employer is buying shares on your behalf pre-tax, which will still work out, because that immediately reduces whatever you would have put in your income (salary) account. So on purchase of RRSP shares you'd reduce your effective income and increase an offset (liability?) account. On sale, do the reverse until your chosen offset account hits zero, and then any other withdrawls are new income (gains on the investment). I believe the rest should come out in the wash (tax forms). The only question in my mind is what to balance the income account against.. and I'm afraid for that I only have guesses. ___ gnucash-user mailing list gnucash-user@gnucash.org https://lists.gnucash.org/mailman/listinfo/gnucash-user - Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
Re: How to deal with RRSP's (Canada)
On 02/01/18 06:52 PM, DaveC49 wrote: Larry If your withdrawals from the RRSP are taxable on withdrawal then I think your approach of using two files recording transfers to your bank account from the RRSP as Expenses in the RRSP account and Income in your main accounts should work fine as it will satisfy the accounting equation in both files without any conflicts and will keep Gnucash happy. With both the RRSP and your bank accounts in a single file, the decrease of an asset (RRSP) is a credit to that account and an increase in Income (which it would have to be to record it as income for taxation) is also a credit to the income account in that same file, which would not be a balanced transaction in which the sum of debits and credits is zero. For me, the RRSPs have been converted to Income Funds, but the principle and procedure are still the same. Contribution is straightforward: from a Current Asset account to the RRSP, like this: Assets:Current Assets:Chequing Account $5,000 Assets:Investments:RRSP $5,000 Withdrawal is more complex, because you have to show Income, Withholding Tax, the receiving Account, and the RRSP account, so using an Equity account for RSP/RIF withdrawals is needed to balance, like this: Assets:Investments:RRSP $5,000 Assets:Current Assets:Chequing $3,500 Expenses:Taxes:Income Tax $1,500 Income:RRSP $5,000 Equity:RSP/RIF $5,000 At any rate, that's how I do it. YMMV. Cheers Cam ___ gnucash-user mailing list gnucash-user@gnucash.org https://lists.gnucash.org/mailman/listinfo/gnucash-user - Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
Re: How to deal with RRSP's (Canada)
Victor, Dave, Thanks for your help. At this point my file is not very large and my new RRSP file will be quite small, so I think I will give this approach a try. Larry On 01/02/18 06:08 PM, "R. Victor Klassen" wrote: > > > > > > I kind of like your approach - thus far I’ve tracked my retirement accounts > outside of GnuCash, which is similar. The only pitfall I can see is if your > gnucash file gets at all large, the time it takes to open a file gets long. > And having multiple files means the file-open delay whenever you switch. > > > > > You don’t get a true calculation of Net Worth - but you can take the result > of Net Worth as calculated in each of the two files and sum them (by hand if > need be). > > > > > > > > > On Jan 2, 2018, at 8:49 PM, lejohnston wrote: > > > > > > Hi, > > > > > > > > Last year I treated the RRSP as an asset and contributions as transfers > > from a Savings Account to the RRSP account. I think this is in line with > > what Dave is saying. > > > > > > > > > > Although as you say contributions are tax deductible, earnings are > > tax-deferred; withdrawals are taxable I am not especially concerned about > > tracking that (my finances are fairly simple and I am not in any danger of > > exceeding any limits). My main concern is related to my budgeting > > especially when I start to draw down on the RRSP. If I merely transfer > > money from my RRSP to my checking account then I don't see how it becomes > > available in my Budget. That is why I was thinking it would be advantageous > > to treat contributions as an expense, similar to a pension contribution and > > to track it in a separate GNUCash file and then when I draw it down it > > would be an expense in the RRSP file and Income in my Main file. That seems > > simpler to me but I wanted to make sure I was not making creating other > > problems. > > > > > > > > > > Thanks for any further insights. > > > > > > > > > > Larry > > > > > > On 01/02/18 05:08 PM, "R. Victor Klassen" wrote: > > > > > > The remaining unanswered question, which I think is part of the original > > > question, is what to do about withdrawals being treated as taxable income? > > > For those in the US, an RRSP is roughly equivalent to an (non-Roth) IRA. > > > Contributions are tax deductible, earnings are tax-deferred; withdrawals > > > are taxable. > > > > > > So I think the question is, how to account for contributions to a > > > tax-deferred account - not really expenses, but they do change current > > > taxes owed - and distributions: while it is truly a transfer from one > > > asset account to another, the distribution is treated as income by the > > > taxing authorities. > > > > > > > On Jan 2, 2018, at 6:36 PM, DaveC49 wrote: > > > > > > > > Larry, > > > > > > > > I'm not familiar with the details of RRSP accounts in Canada so any > > > > comments > > > > here are general in nature and not taken as accounting advice per se. > > > > > > > > If it is a retirement savings account you would treat it as an Asset. > > > > Depending upon the conditions associated with withdrawal of funds from > > > > the > > > > RRSP you would most likely classify it as either a long term fixed > > > > asset or > > > > a current asset. For personal accounting this distinction is not as > > > > important as in business accounting, but can be still useful. (You could > > > > simply record eveything just under Assets if you wished and this met > > > > your > > > > requirements). > > > > > > > > If you can withdraw funds at any time at your discretion, then you would > > > > normally classify it as a current asset otherwise as a fixed asset. If > > > > there > > > > are rules about how much you can withdraw and how often in the future, > > > > you > > > > could continue to classify it as a fixed asset when you gain ready > > > > access to > > > > the funds at some future time. If the funds become freely available (on > > > > retirement for example), you could reclassify it as a current asset at > > > > this > > > > point in time. This simply requires having placeholder subaccounts for > > > > Fixed Assets and Current Assets under your Assets top level account and > > > > changing the parent account for your RRSP from Fixed Assets to Current > > > > Assets for example. It will just change what heading it appears under > > > > on the > > > > Balance Sheet > > > > > > > > If you are paying into the RRSP yourself, you are not creating an > > > > expense > > > > when you transfer the money even though it may actually go to whoever > > > > holds > > > > and maintains the RRSP account (it may be your bank for example) as you > > > > still retain ownership and the right to access the funds in the future. > > > > > > > > You are in this case exchanging one asset (cash in your bank account) > > > > for > > > > another asset (the increase in the balance of the RRSP), so there is no > > > > expense
Re: How to deal with RRSP's (Canada)
Larry If your withdrawals from the RRSP are taxable on withdrawal then I think your approach of using two files recording transfers to your bank account from the RRSP as Expenses in the RRSP account and Income in your main accounts should work fine as it will satisfy the accounting equation in both files without any conflicts and will keep Gnucash happy. With both the RRSP and your bank accounts in a single file, the decrease of an asset (RRSP) is a credit to that account and an increase in Income (which it would have to be to record it as income for taxation) is also a credit to the income account in that same file, which would not be a balanced transaction in which the sum of debits and credits is zero. David - David Cousens -- Sent from: http://gnucash.1415818.n4.nabble.com/GnuCash-User-f1415819.html ___ gnucash-user mailing list gnucash-user@gnucash.org https://lists.gnucash.org/mailman/listinfo/gnucash-user - Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
Re: How to deal with RRSP's (Canada)
I kind of like your approach - thus far I’ve tracked my retirement accounts outside of GnuCash, which is similar. The only pitfall I can see is if your gnucash file gets at all large, the time it takes to open a file gets long. And having multiple files means the file-open delay whenever you switch. You don’t get a true calculation of Net Worth - but you can take the result of Net Worth as calculated in each of the two files and sum them (by hand if need be). > On Jan 2, 2018, at 8:49 PM, lejohnston wrote: > > Hi, > > Last year I treated the RRSP as an asset and contributions as transfers from > a Savings Account to the RRSP account. I think this is in line with what Dave > is saying. > > Although as you say contributions are tax deductible, earnings are > tax-deferred; withdrawals are taxable I am not especially concerned about > tracking that (my finances are fairly simple and I am not in any danger of > exceeding any limits). My main concern is related to my budgeting especially > when I start to draw down on the RRSP. If I merely transfer money from my > RRSP to my checking account then I don't see how it becomes available in my > Budget. That is why I was thinking it would be advantageous to treat > contributions as an expense, similar to a pension contribution and to track > it in a separate GNUCash file and then when I draw it down it would be an > expense in the RRSP file and Income in my Main file. That seems simpler to me > but I wanted to make sure I was not making creating other problems. > > Thanks for any further insights. > > Larry > > On 01/02/18 05:08 PM, "R. Victor Klassen" wrote: >> >> The remaining unanswered question, which I think is part of the original >> question, is what to do about withdrawals being treated as taxable income? >> For those in the US, an RRSP is roughly equivalent to an (non-Roth) IRA. >> Contributions are tax deductible, earnings are tax-deferred; withdrawals are >> taxable. >> >> So I think the question is, how to account for contributions to a >> tax-deferred account - not really expenses, but they do change current taxes >> owed - and distributions: while it is truly a transfer from one asset >> account to another, the distribution is treated as income by the taxing >> authorities. >> >> > On Jan 2, 2018, at 6:36 PM, DaveC49 wrote: >> > >> > Larry, >> > >> > I'm not familiar with the details of RRSP accounts in Canada so any >> > comments >> > here are general in nature and not taken as accounting advice per se. >> > >> > If it is a retirement savings account you would treat it as an Asset. >> > Depending upon the conditions associated with withdrawal of funds from the >> > RRSP you would most likely classify it as either a long term fixed asset or >> > a current asset. For personal accounting this distinction is not as >> > important as in business accounting, but can be still useful. (You could >> > simply record eveything just under Assets if you wished and this met your >> > requirements). >> > >> > If you can withdraw funds at any time at your discretion, then you would >> > normally classify it as a current asset otherwise as a fixed asset. If >> > there >> > are rules about how much you can withdraw and how often in the future, you >> > could continue to classify it as a fixed asset when you gain ready access >> > to >> > the funds at some future time. If the funds become freely available (on >> > retirement for example), you could reclassify it as a current asset at this >> > point in time. This simply requires having placeholder subaccounts for >> > Fixed Assets and Current Assets under your Assets top level account and >> > changing the parent account for your RRSP from Fixed Assets to Current >> > Assets for example. It will just change what heading it appears under on >> > the >> > Balance Sheet >> > >> > If you are paying into the RRSP yourself, you are not creating an expense >> > when you transfer the money even though it may actually go to whoever >> > holds >> > and maintains the RRSP account (it may be your bank for example) as you >> > still retain ownership and the right to access the funds in the future. >> > >> > You are in this case exchanging one asset (cash in your bank account) for >> > another asset (the increase in the balance of the RRSP), so there is no >> > expense component of the transaction. The basic transaction will be: >> > >> > Debit >> > >> > Credit >> > Asset:Bank:CheckAccount >> > >> > >> > Asset:RRSP >> > >> > >> > >> > If you select double line mode (Menu->View->Double Line) when you click on >> > a >> > transactionof this type in an account register e.g. your RRSP account >> > Register you should lines corresponding to both of the above components. >> > >>
Re: How to deal with RRSP's (Canada)
Hi, Last year I treated the RRSP as an asset and contributions as transfers from a Savings Account to the RRSP account. I think this is in line with what Dave is saying. Although as you say contributions are tax deductible, earnings are tax-deferred; withdrawals are taxable I am not especially concerned about tracking that (my finances are fairly simple and I am not in any danger of exceeding any limits). My main concern is related to my budgeting especially when I start to draw down on the RRSP. If I merely transfer money from my RRSP to my checking account then I don't see how it becomes available in my Budget. That is why I was thinking it would be advantageous to treat contributions as an expense, similar to a pension contribution and to track it in a separate GNUCash file and then when I draw it down it would be an expense in the RRSP file and Income in my Main file. That seems simpler to me but I wanted to make sure I was not making creating other problems. Thanks for any further insights. Larry On 01/02/18 05:08 PM, "R. Victor Klassen" wrote: > > The remaining unanswered question, which I think is part of the original > question, is what to do about withdrawals being treated as taxable income? > For those in the US, an RRSP is roughly equivalent to an (non-Roth) IRA. > Contributions are tax deductible, earnings are tax-deferred; withdrawals are > taxable. > > So I think the question is, how to account for contributions to a > tax-deferred account - not really expenses, but they do change current taxes > owed - and distributions: while it is truly a transfer from one asset account > to another, the distribution is treated as income by the taxing authorities. > > > On Jan 2, 2018, at 6:36 PM, DaveC49 wrote: > > > > Larry, > > > > I'm not familiar with the details of RRSP accounts in Canada so any comments > > here are general in nature and not taken as accounting advice per se. > > > > If it is a retirement savings account you would treat it as an Asset. > > Depending upon the conditions associated with withdrawal of funds from the > > RRSP you would most likely classify it as either a long term fixed asset or > > a current asset. For personal accounting this distinction is not as > > important as in business accounting, but can be still useful. (You could > > simply record eveything just under Assets if you wished and this met your > > requirements). > > > > If you can withdraw funds at any time at your discretion, then you would > > normally classify it as a current asset otherwise as a fixed asset. If there > > are rules about how much you can withdraw and how often in the future, you > > could continue to classify it as a fixed asset when you gain ready access to > > the funds at some future time. If the funds become freely available (on > > retirement for example), you could reclassify it as a current asset at this > > point in time. This simply requires having placeholder subaccounts for > > Fixed Assets and Current Assets under your Assets top level account and > > changing the parent account for your RRSP from Fixed Assets to Current > > Assets for example. It will just change what heading it appears under on the > > Balance Sheet > > > > If you are paying into the RRSP yourself, you are not creating an expense > > when you transfer the money even though it may actually go to whoever holds > > and maintains the RRSP account (it may be your bank for example) as you > > still retain ownership and the right to access the funds in the future. > > > > You are in this case exchanging one asset (cash in your bank account) for > > another asset (the increase in the balance of the RRSP), so there is no > > expense component of the transaction. The basic transaction will be: > > > > Debit > > Credit > > Asset:Bank:CheckAccount > > > > Asset:RRSP > > > > > > > > If you select double line mode (Menu->View->Double Line) when you click on a > > transactionof this type in an account register e.g. your RRSP account > > Register you should lines corresponding to both of the above components. > > > > Interest should be recorded as: > > Debit > > Credit > > Asset:RRSP yyy > > Income:InterestRRSP > > yyy > > > > Whether that interest is taxable or not under your local legislation will > > determine whether you classify it under TaxableIncome or NonTaxableIncome. > > > > When you withdraw funds from the RRSP to your bank account, the transaction > > will be the same as the deposit above with a reversal of the debit and > > credit entries,i.e.: > > > > Debit > > Credit > > Asset:Bank:CheckAccount > > Asset:RRSP > > > > > > Hope this helps with the recording of your RRSP. If your records are in > > anyway critical (e.g. tax and legal implications) it would be advisable to > > seek professional advice locally. > > > > David Cousens > > > > > > > > - > > David Cousens > > -- > > Sent from: http://gnucash.1415818.n4.nabble.com/GnuCash-User
Re: How to deal with RRSP's (Canada)
The remaining unanswered question, which I think is part of the original question, is what to do about withdrawals being treated as taxable income? For those in the US, an RRSP is roughly equivalent to an (non-Roth) IRA. Contributions are tax deductible, earnings are tax-deferred; withdrawals are taxable. So I think the question is, how to account for contributions to a tax-deferred account - not really expenses, but they do change current taxes owed - and distributions: while it is truly a transfer from one asset account to another, the distribution is treated as income by the taxing authorities. > On Jan 2, 2018, at 6:36 PM, DaveC49 wrote: > > Larry, > > I'm not familiar with the details of RRSP accounts in Canada so any comments > here are general in nature and not taken as accounting advice per se. > > If it is a retirement savings account you would treat it as an Asset. > Depending upon the conditions associated with withdrawal of funds from the > RRSP you would most likely classify it as either a long term fixed asset or > a current asset. For personal accounting this distinction is not as > important as in business accounting, but can be still useful. (You could > simply record eveything just under Assets if you wished and this met your > requirements). > > If you can withdraw funds at any time at your discretion, then you would > normally classify it as a current asset otherwise as a fixed asset. If there > are rules about how much you can withdraw and how often in the future, you > could continue to classify it as a fixed asset when you gain ready access to > the funds at some future time. If the funds become freely available (on > retirement for example), you could reclassify it as a current asset at this > point in time. This simply requires having placeholder subaccounts for > Fixed Assets and Current Assets under your Assets top level account and > changing the parent account for your RRSP from Fixed Assets to Current > Assets for example. It will just change what heading it appears under on the > Balance Sheet > > If you are paying into the RRSP yourself, you are not creating an expense > when you transfer the money even though it may actually go to whoever holds > and maintains the RRSP account (it may be your bank for example) as you > still retain ownership and the right to access the funds in the future. > > You are in this case exchanging one asset (cash in your bank account) for > another asset (the increase in the balance of the RRSP), so there is no > expense component of the transaction. The basic transaction will be: > > Debit > > Credit > Asset:Bank:CheckAccount > > > Asset:RRSP > > > > If you select double line mode (Menu->View->Double Line) when you click on a > transactionof this type in an account register e.g. your RRSP account > Register you should lines corresponding to both of the above components. > > Interest should be recorded as: >Debit > > Credit > Asset:RRSP yyy > Income:InterestRRSP > > yyy > > Whether that interest is taxable or not under your local legislation will > determine whether you classify it under TaxableIncome or NonTaxableIncome. > > When you withdraw funds from the RRSP to your bank account, the transaction > will be the same as the deposit above with a reversal of the debit and > credit entries,i.e.: > > Debit > > Credit > Asset:Bank:CheckAccount > Asset:RRSP > > > > Hope this helps with the recording of your RRSP. If your records are in > anyway critical (e.g. tax and legal implications) it would be advisable to > seek professional advice locally. > > David Cousens > > > > - > David Cousens > -- > Sent from: http://gnucash.1415818.n4.nabble.com/GnuCash-User-f1415819.html > ___ > gnucash-user mailing list > gnucash-user@gnucash.org > https://lists.gnucash.org/mailman/listinfo/gnucash-user > - > Please remember to CC this list on all your replies. > You can do this by using Reply-To-List or Reply-All. ___ gnucash-user mailing list gnucash-user@gnucash.org https://lists.gnucash.org/mailman/listinfo/gnucash-user - Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
Re: How to deal with RRSP's (Canada)
Larry, I'm not familiar with the details of RRSP accounts in Canada so any comments here are general in nature and not taken as accounting advice per se. If it is a retirement savings account you would treat it as an Asset. Depending upon the conditions associated with withdrawal of funds from the RRSP you would most likely classify it as either a long term fixed asset or a current asset. For personal accounting this distinction is not as important as in business accounting, but can be still useful. (You could simply record eveything just under Assets if you wished and this met your requirements). If you can withdraw funds at any time at your discretion, then you would normally classify it as a current asset otherwise as a fixed asset. If there are rules about how much you can withdraw and how often in the future, you could continue to classify it as a fixed asset when you gain ready access to the funds at some future time. If the funds become freely available (on retirement for example), you could reclassify it as a current asset at this point in time. This simply requires having placeholder subaccounts for Fixed Assets and Current Assets under your Assets top level account and changing the parent account for your RRSP from Fixed Assets to Current Assets for example. It will just change what heading it appears under on the Balance Sheet If you are paying into the RRSP yourself, you are not creating an expense when you transfer the money even though it may actually go to whoever holds and maintains the RRSP account (it may be your bank for example) as you still retain ownership and the right to access the funds in the future. You are in this case exchanging one asset (cash in your bank account) for another asset (the increase in the balance of the RRSP), so there is no expense component of the transaction. The basic transaction will be: Debit Credit Asset:Bank:CheckAccount Asset:RRSP If you select double line mode (Menu->View->Double Line) when you click on a transactionof this type in an account register e.g. your RRSP account Register you should lines corresponding to both of the above components. Interest should be recorded as: Debit Credit Asset:RRSP yyy Income:InterestRRSP yyy Whether that interest is taxable or not under your local legislation will determine whether you classify it under TaxableIncome or NonTaxableIncome. When you withdraw funds from the RRSP to your bank account, the transaction will be the same as the deposit above with a reversal of the debit and credit entries,i.e.: Debit Credit Asset:Bank:CheckAccount Asset:RRSP Hope this helps with the recording of your RRSP. If your records are in anyway critical (e.g. tax and legal implications) it would be advisable to seek professional advice locally. David Cousens - David Cousens -- Sent from: http://gnucash.1415818.n4.nabble.com/GnuCash-User-f1415819.html ___ gnucash-user mailing list gnucash-user@gnucash.org https://lists.gnucash.org/mailman/listinfo/gnucash-user - Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
How to deal with RRSP's (Canada)
Hi, I am starting my second year in GNUCash. I think I may have set up my RRSP's (I think in the US they are 401K's) incorrrectly. I have them as Asset accounts under Current Assets. At first it seemed ok but now as I am getting closer to starting to withdraw funds rather than deposit them I am not sure how it would work. My RRSP has no employer contributions, just what I contribute each year plus interest. I read some things in the archives about this and now think that the better approach would be to remove the RRSP accounts from my GNUCash file and start another one just for the RRSP's. Then my RRSP contributions would be an expense similar to my contributions to my pension plan. I could track the progress of the RRSP's in my RRRSP GNUCash file. When I start withdrawing funds from my RRSP (actually I think it would be converted to a RIF then) I could show it as income in my main GNUCash file. I thought I would check here before doing anything to make sure I am not creating additional problems. Does anyone have further insight on this question? TIA, Larry ___ gnucash-user mailing list gnucash-user@gnucash.org https://lists.gnucash.org/mailman/listinfo/gnucash-user - Please remember to CC this list on all your replies. You can do this by using Reply-To-List or Reply-All.
